TicketMaster (TKTM) is the world’s largest live entertainment ticketing and marketing company. The company is a primary and secondary ticketing (thru ticketsnow.com) retailer in the
You and I both have had experience with TicketMaster and loathe would be too nice a word to describe the feeling. They make way above the economic rate of returns and have successfully passed price increases to customers - something a monopoly can do. Ticketmaster secures its monopoly by goading the venues into multi-year agreements that empower Ticketmaster to act as their exclusive vendor. So what was a cost center for venues (ticketing) has become a steady source of income. They have been a monopoly ever since the early 1990's and have maintained and increased their position even after the advent of the Internet and increasing number of players. They are very Microsofteqe in their business practices and took/are taking a lot of heat for their monopolistic actions. It was spun off of IAC in mid-2008. In essence, TicketMaster is a toll booth.
In 2008, Tktm had revenues of $1.45B with an ebitda of $225 million for ebitda margins of 16%. The margins have however come down from the mid 20's over the past few years. TKTM is trading at $7.50 for an EV of $1060 million and an EV/EBITDA ratio of 4.7. It traded for as low as $3.50/share in March 2009.
Present
This is where things get convoluted. Live Nation, TicketMaster's biggest client fired TicketMaster and said they'll do their own ticketing (LYV brought 13% of revenue in 2008 for TKTM). Live Nation also intends to poach TKTM's clients. Live Nation operats on razor thin margins but has a large presence in the live entertainment business. TicketMaster then bought a majority interest in Frontline Management and brought Irving Azoff (someone you wanna read about) as CEO. With this TKTM controlled a lot of very high profile artists and became a threat to Live Nation. Live Nation and TicketMaster then decided to merge (50-50 share) and have all the intended approvals except the regulatory approvals (which might be tough to get!).
In this business, the main parts of the puzzle are: (1) Artists (2) Promotors (3) Venues (4) Ticketing and (5) the Fan. Live Nation is the worlds biggest promoter, has control over various venues and artists (because they can pay them more than anybody else, given the scale). TicketMaster has ticketing and venues (thru exclusivity arrangements) and now artists thru Frontline. Combining these two business would vertically integrate an industry and crush the competition, but I don't think a stockholder would complain.
Future?
The files are with the Justice Department and they along with the states are taking a deep hard look at the merger. I'd say there is a 50-50 chance. They do have a case when they say touring is the main source of income for the artists and the record label model is broken with the illegal downloads etc. They might be asked to divest certain assets like ticketsnow.com for the merger to pass.
If the merger does not happen that is where things become uncertain. A couple of scenarios:
1) Live Nation comes back to Tktm for ticketing and they Frontline works with Live Nation, in essence they collude (kinda)- will they be able to pull this off?
2) Live Nation does not come back. TicketMaster decides to go into the live event promotion business (with Frontline managing artists) and these two operate in a duopoly - can they?
3) TicketMaster faces increased competition from Live Nation in the ticketing business. TicketMasters market share decreases - but by how much? Can Live Nation severely damage their moat?
They exposed themselves by announcing a merger. I watched the senate hearing on the TicketMaster/Live Nation merger and it was well worth watching. There is information on the history, business practices, competitors, future etc. etc. Now TKTM is cheap (given market position, margins, ROC), it might get cheaper but given all the uncertainties is it safe? what chu think?
3 comments:
BSivia, good to have you back. You have a very good eye for cheap situations. I hope only you increase somewhat the number of your posts.
It would be great to share more of your insights.
Even i found it to be nice bargain but how do u account how do u account for the excessive compensation to the ceo.
Mr. Azoff is entitled to a guaranteed $2,000,000 annual bonus in addition to $2 million in salary.
and wat does guaranteed bonus mean?
does it mean that the ceo will get the bonus irrespective of any performance metric.
Yes, that is more or less what it means! The dynamics of this company are a little different because Azoff is really a talent manager, but the company had to woo him to complete against Live Nation.
The positive here is that Azoff also owns 20% of the company from what I remember and that aligns his interests with the shareholders.
Post a Comment